The Most Common Reasons Why the Gold Price Fluctuate



On September 30, 2019, gold prices dropped below the $1,500 mark after steady gains in the past few months. For the most part, the value of the dollar increases or decreases based on the economy, political landscape, and market forces. 

 

But what moves the metal market? Why does the Gold Price per ounce fluctuate? Here are the most common reasons why:

 

1. Inflation

 

Gold bullion is more stable than currencies. When the dollar suffers a devaluation, for instance, people tend to turn to gold more since it’s more immune to the influence of geopolitics compared to currencies. Whereas, the dollar’s value will decline if inflationary forces persist over time.

In times of volatility, the natural urge of the investors is to turn to gold. In which case, the rising demand will also drive up the prices.

 

2. Supply 

 

According to the World Gold Council, some 2,500 to 3,000 tons of gold are produced every year from global tunnels. The market will also consider the volume of gold reserves (which have yet to be mined) and the resources (the potential gold reserves) of the mines.

Of course, as the supply dips, the gold price per ounce soars. Also, if more people will buy bullion and gold prices will increase. 

 

3. Production costs

 

Gold mining is not an easy job. It takes more than a day to process gold out of the ores. As such, some local conditions can drive up production costs, such as payroll, for instance, increasing mineral taxes, raw materials, diesel, and the like. Naturally, mining companies will pass on the cost to the consumers so they can keep their profits.

 

4. Federal Reserve

 

In the US, it’s the Federal Reserve, but in other countries, it’s the policy of their respective central banks, which affects the gold price per ounce. When the Federal Reserve has excess reserves because the economy is doing well, the first tendency is to unload its gold.

Central banks don’t have high regard for gold because it’s classified as a dead asset. They put more premiums on securities, bonds, and currencies, which yield more returns. However, when the economy is doing well, investors are also not interested in gold. You have all this excess with no takers; thus, gold prices plummet. 

 

5. Geopolitics 

 

Often, gold is referred to as a crisis commodity. It’s the default commodity of investors who may have lost confidence over their government or their economies. 

 

When the world is reeling from war, famine, coup d ‘états, political transitions, diseases, and trade wars, people will pull out of the stock market and trade for gold. On the flip side, when the market bounces, people will go back to investing in stocks and the dollar.

 

Lastly, even if the factors cited above will impact on the selling and buying price of gold, it’s only just smoke and mirrors. Gold is still a very precious commodity, which means that its price will remain steady for a very long time. Even if the price of gold dips now, you can wait before the market rebounds before selling.